The ZEW institute said its monthly index, which gauges investors' outlook for the next six months, was down 1.7 points from September at 56 points.

Despite the dip, the reading was still well above the index's historical average of 26.7 points.

The ZEW said that while increases in industrial orders boosted sentiment, recent data showing a decline in exports weakened expectations – and there are still doubts about the strength of private consumption in the coming months.

"The assessment of the financial market experts reflects the prevalent opinion. The economy will improve only gradually," ZEW president Wolfgang Franz said in a statement.

The German economy returned to modest growth in the second quarter following a deep recession.

Despite the recent improvements in the ZEW's expectations indicator, its measures of current economic views in Germany is still very poor and rising only slowly – it grew 1.8 points in October to minus 72.2 points.

Data last week showed that German exports – the economy's main motor – fell 1.8 percent on the month in August, interrupting three consecutive months of gains.

Still, industrial orders have risen for six straight months – most recently in August, when the increase was powered by stronger foreign demand.

Orders for German cars, machinery and consumer goods suffered at the height of the global economic crisis, but there are increasing glimmers of hope.

Last week, Bayer AG said it would end a program under which 4,100 Germany-based employees in its plastics unit have worked reduced hours, citing improved orders.

Looking beyond Germany, ZEW said an index measuring investors' outlook for the 16-nation eurozone also fell in October, dropping 2.7 points to 56.9. Their assessment of the current situation, however, improved by 2.5 points to minus 75.4.

The Mannheim-based ZEW, also known as the Center for European Economic Research, surveyed 288 market analysts between Sept. 28 and Oct. 12 for this month's survey.